Friday 15 August 2014

Investment Trust Income Portfolio - August Update

The house move was completed at the end of July and the new phone line and broadband connection has just gone ‘live’ so I can slowly get back to my familiar routines and, of course, regular blog updates.

I last updated on my investment trust income portfolio at the end of 2013 (here's the link). The previous post was 12 months back so perhaps now is a good time to update as the markets appear to be fairly quiet.

Just to recap, in June 2012, I moved my sipp into income drawdown as I felt I could generate a better income over the long term than taking an annuity. Investment trusts now generate a large percentage of my drawdown income and also a large percentage of the income in my stocks & shares ISA. The main objective is to generate an income which will hopefully rise each year to keep pace with inflation - a sort of index-linked annuity substitute.

I thought it may be a good long term project to monitor the progress of  a model portfolio comprising the majority of these investment trusts as if it had been started on 1st January 2013 so I  took the closing prices for each investment trust at the end of 2012 and allocated a nominal sum of £2,000 to each.

The starting portfolio consisted of 12 investment trusts (£24,000) selected from the income sector - both UK and global - and also included some of the higher yielding trusts from other sectors including global growth, far east , smaller companies and some fixed interest. I subsequently added Finsbury Growth & Income Trust and Vanguard All World High Income ETF - £2,000 each. The Vanguard ETF will act as a benchmark against which to measure the performance - income and capital returns - of the portfolio as a whole. There is much comment and debate about the merits of passive trackers versus actively managed funds and trusts so it will be interesting to see how the two compare in real life rather than some academic study.

Although this is demonstration income portfolio, it largely mirrors my own holdings. However, whilst I withdraw most of the income from my trusts for living expenses, with this demonstration portfolio I will reinvest the income at the end of each year either into an addition investment trust - as with Invesco Income Growth this past year - or recycle the income generated into one of the existing holdings.

Since the start of this project in January 2013, the only portfolio disposal was the sale of Blackrock N. American Trust last October. The proceeds of £2,155 were recycled into a top-up of Edinburgh - an additional 375 shares @ 569p. I really do not anticipate making too many changes to the portfolio.

The stand out performance so far continues to be Aberforth Smaller Companies with a total return of 65% although many others have returned well over 20% on a total return basis.

The FTSE 100 currently stands at 6,689, a gain of 13.4% compared to January 2013 - factor in dividends paid will give a total return of around 19.5%. The total return of the portfolio is 22.5% which is very satisfactory.

(click to enlarge)

As I said earlier, my benchmark against which I will measure performance will be the Vanguard High Income tracker. The performance over the past year has been fairly flat and the total return, including income is 3.1%. The portfolio has returned 5.7% over the same period which demonstrates that the actively managed investment trusts have out-performed the passive low cost tracker. Of course, 20 months is not very long in investing terms so it will be interesting to see how the two compare over the longer periods.

I am obviously happy with the portfolio performance so far and will be thinking of a home for this years accumulated dividends as the year draws to a close. Please feel free to nominate your suggestions.

As I absolutely depend on the income from my investments to pay the bills and put food on the table, the objective of the income portfolio is to produce a dependable and rising income. Capital appreciation is always welcome but will largely follow the ups and downs of the general stock market.


  1. John - I am attempting to put my own IT portfolio together. Many portfolio theories indicate I should have a good mix of defensive assets in particular short dated AA Bonds and Inflation Linked Bonds. What was your rationale for not having them in this portfolio? I note there is some exposure with NCYF.

  2. Hi,
    Thanks for dropping by and, to answer your question - I should point out that this IT portfolio is part of a wider portfolio. I also have a shares section and a fixed income section which includes PIBS, corporate bonds and preference shares which delivers quite a substantial percentage of the total income - but no gilts so far.

    The non- equity part of my portfolio accounts for around 40% of the total - of the 60% equity, roughly two thirds comprise of investment trusts and the remainder individual shares.

    Gilts may well come into play at some point in the future, but in recent years the yield has been too low for my needs.

    Good luck with your own investing plans - which ITs are you considering?

    1. Hi John,
      I'm at the early stages of putting all this together, researching and planning. Taken inspiration from your books, RIT website, Smarter Investing (Tim Hale) and John Baron's Guide to Investment Trusts. All food for the brain. I'm thinking of starting with IT's and trackers, perhaps adding shares at a later date once it is up and running and I have some more cash to put in. Need to sort out the defensive mix, put it all together and at that point I will post it here for comment.
      Ian F (not anon!)

    2. Hi Ian,

      Plenty of good reading there to put into your mix. Look forward to seeing what you come up with - if you want comment from other readers, this post is probably not the best place as it will no longer be current i.e. on the opening page - probably best to wait for a new post relating to ITs ( but not sure when that may be!)

      Good luck with putting your portfolio together.

    3. Hi John,
      Have made start on the portfolio consrtuction. Have yet to analyse the weighting in terms of geography etc. and have yet to put the defensive mix together which will make up the other 40%.
      Do you know if I can attach an image or pdf here? and how?

    4. "Do you know if I can attach an image or pdf here? and how?" - sorry Ian, I do not know.

  3. John - proposed portfolio
    Returns section 60%
    Defensive mix 40%

    Returns Section
    (% shown is breakdown in this section)
    UK (20% )
    F&C Capital & Income IT
    City of London IT
    Murray Income Trust IT
    Aberporth Smaller Companies IT

    Global (60%)
    Vanguard FTSE All-World High Dividend Yield ETF
    North American Income Trust
    Murray International Trust
    Aberdeen Asian Income Fund
    Henderson Far East Income
    Blackrock Greater Europe IT
    F&C European Assets Trust
    Vanguard FTSE Emerging Markets ETF

    Diversified section
    Healthcare (8%)

    Polar Capital Global Healthcare Growth & Income Trust
    Amundi ETF MSCI Europe Healthcare UCITS ETF

    Real Estate (10%)
    db x-trackers FTSE EPRA/NAREIT Global Real Estate UCITS ETF
    db x-trackers FTSE EPRA/NAREIT Developed Europe Real Estate UCITS ETF

    Commodities (2%)
    BlackRock Commodities Income Trust

    That completes the returns section

    Defensive Mix (40%)
    Vanguard U.K. Investment Grade Bond Index Fund
    Vanguard U.K. Inflation-Linked Gilt Index Fund
    New City High Yield IT
    City Merchants High Yield IT

  4. Hi Ian,

    Thanks for posting your proposed portfolio. Obviously I cannot comment on the specifics as it may be construed as advice but it appears to cover many areas and is well diversified.

    It would be interesting to get some opinions from other readers but this post has now fallen off the front page so is likely to be missed by many of the regulars.

    Good luck with whatever you eventually settle on!